Your inheritance, their claim: how family law handles bequests and gifts

Why 'it came from my family' is not automatically a complete answer and how timing, use of funds and length of marriage all matter

One of the most emotionally charged questions in any property settlement is the treatment of inherited wealth. For a party who has received a significant bequest from a parent, or who expects to do so, the instinct is clear: this money came from my family and has nothing to do with the marriage. The law's answer is more nuanced and understanding it early can make a substantial difference to the outcome.

This article examines how Australian courts approach inheritances and gifts in property settlements, focusing on the principles that determine when an inheritance is quarantined and when it is absorbed into the common pool.

The starting point - how Australian Family Courts treat inheritances in property settlements

The foundational authority is Bonnici & Bonnici (1992) FLC 92-272. The Full Court of the Family Court established a principle that remains relevant today: where there are ample assets available for a fair settlement, a recently acquired inheritance will ordinarily be treated as the entitlement of the receiving party. The rationale is straightforward. The other spouse cannot generally be said to have contributed to an inheritance received very late in the relationship or after it has ended.

Bonnici also recognised narrow exceptions: circumstances such as caring for the testator prior to death, or taking specific steps to preserve a bequest, might justify the other spouse receiving some credit. But these remain exceptions, not the rule.

Critically, Bonnici does not create a blanket protection. The Full Court was explicit that a property does not fall into a protected category simply because it is an inheritance. The analysis depends on the specific facts: when was it received, how was it used, and what else is in the pool?

What if both spouses receive an inheritance?

The decision in Shnell & Frey [2020] FamCA 631 illustrates why Bonnici resists mechanical application, particularly where both parties have received inheritances at different points in a long marriage.

The husband had received over $2 million in gifts and inheritance from his parents across the course of the marriage. A significant portion, around $530,000, was applied to renovating and improving the former matrimonial home, a property the parties shared and which ultimately was valued at $2.6 million. The wife had also received $60,000 from her father during the marriage, contributed to superannuation.

The wife received a further, much larger inheritance of approximately $2.55 million from her mother's estate four years after separation. She argued it should be placed in a separate pool, with the rest of the assets divided equally, leaving her inheritance untouched. The husband resisted, arguing that since his inheritance had been used for joint benefit, the wife's inheritance should be treated consistently.

The court rejected the two-pool approach. The wife's inheritance was included in the global contributions assessment. The court's reasoning was principled: the husband's inheritance had materially improved joint assets and been used for the benefit of both parties and their children across a 35-year marriage. To treat the wife's later and larger bequest as sacrosanct while crediting the husband's earlier one only partially would not be fair. The inheritances were assessed as significant contributions but within the broader framework of a long marriage.

Inheritance received after separation: is it included in the asset pool?

Timing matters, but not in the simple way many clients assume. The law does not draw a bright line at the date of separation. An inheritance received after separation can still be included in the asset pool for the purpose of a property settlement under s79 of the Family Law Act. The question is always what weight it should receive as a contribution, not whether it can be considered at all.

Inheritances received late in a marriage, close to separation, and kept structurally separate, invested in accounts or assets in the receiving party's sole name, not commingled with joint funds stand a better chance of being treated favourably for the recipient spouse. But even here, the length of the marriage and the myriad of contributions of both parties can dilute the effect.

Does the length of marriage affect how an inheritance is treated?

It is an accepted principle that there is no starting point of equality in a property settlement, and every case requires its own assessment of contributions. But the practical reality is that in a long marriage of say 20 years or more, contributions both financial and non-financial tend to be assessed as broadly equal, and the weight given to any single discrete contribution (including an inheritance) diminishes relative to the cumulative whole.

Inheritances received early in a marriage and then used for joint purposes face the greatest exposure. An inheritance that went towards the deposit on the family home, funded a business that both parties benefited from, or was spent on children's education and family living expenses, is very difficult to quarantine in a long marriage. The inherited funds have become part of the joint enterprise of the marriage, and less weight is attributed to the contribution.

What about gifts from living family members?

The same principles apply to substantial gifts received from living family members. A gift of funds to assist in purchasing a property which is common in today's property market is treated as a contribution by the recipient spouse. Whether that contribution is given special weight depends on how the funds were used, how the property was subsequently treated during the marriage, and how long the relationship lasted.

How to protect an inheritance from a property settlement

Several strategies reduce the exposure of inherited wealth in a family law context. A binding financial agreement, properly executed with full disclosure and independent legal advice, can designate inherited assets as excluded from any future property settlement.

Keeping inherited assets structurally separate preserves the weight of the contribution and provides the factual basis for arguing against its dilution by other contributions. Commingling is the most common way in which an initially separate inheritance loses its character and weight.

Contact Fiona Hoad and the family law team at Bartier Perry for advice on how to protect your inheritance from a family law property settlement claim.

Author: Fiona Hoad

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.